KARACHI, July 8: As the deadline of August 26 draws nearer for replacement of badla financing with a market-based and transparent margin financing, banks and bourses trade charges of being insincere to facilitating the change.
The Karachi Stock Exchange has even declined to attend a meeting of the committee responsible to oversee the process of replacement of conventional badla financing with modern margin financing. No official word is available on whether two other bourses-—Lahore Stock Exchange and Islamabad Stock Exchange — will attend the meeting due to be held on Saturday. But chances are that their top bosses would not be available. The meeting has been convened at the State Bank head office to discuss if banks are ready to pour in the money they had promised for margin-financing, and if so why the market was not availing of the facility.
“We have refused to attend the meeting because we feel it is an exercise in futility,” said the chairman of Karachi Stock Exchange Mr Yasin Lakhani. “We feel that the banking sector is taking the entire investors community for a ride,” charged Mr Lakhani in an angry tone, referring to dilly-delaying by banks in offering margin finance systematically. “We want them to give us the detailed terms and conditions (under which they will provide margin financing).”
He made no comment on whether the bosses of the other two bourses would participate in the meeting but banking and stock market sources said they were not expecting LSE and ISE bosses to attend the meeting. Mr Lakhani blamed a consortium of banks for being non-serious in providing margin finance to investors.
But Mr Shaukat Tarin, chairman of Pakistan Banks Association said banks had made available Rs18.4 billion worth of credit lines for margin financing adding that actual financing made so far had also exceeded Rs2 billion. He said the committee on margin finance would meet on Saturday despite the refusal of the KSE to participate. “And we will see to it that margin financing becomes a reality,” he vowed. Without naming, he charged stockbrokers of “dragging their feet” on the issue of margin finance. “There is no excuse for them at all. Banks are here with commitments of more than Rs18.4 billion. If they are serious why don’t they draw down this money,” he asked bitterly.
At an earlier meeting of the committee on margin finance held at the SBP head office on June 23, the KSE chief Mr Yasin Lakhani had blamed the bankers for being too slow in providing margin finance.
Mr Tarin frankly admitted that initially banks were a bit slow in arranging margin finance but claimed that “now most of them have made their credit lines available for this purpose.” But Mr Lakhani said banks had so far provided a negligible amount of margin financing adding that what else they are out to offer is nothing but repo financing and that too at very high rates except for those that are favourites. He said some selected brokers who had availed of margin-financing from banks were, in turn, doing parallel banking and offering margin finance to small investors at 18-24 per cent.
Mr Tarin, however, claimed that as far as banks are concerned they are offering margin finance at the rates ranging between nine and 14 per cent. “My own bank (Union Bank) is giving margin finance at 12-12 per cent,” he said.
Stockbrokers say that about Rs13 billion were still stuck up in conventional badla financing or carry over transactions or COT meaning that to replace badla with margin financing by August 26, the market needs this much amount of money. Data released by the State Bank show that as on June 25, 2005, total exposure of banks and development finance institutions in badla financing was Rs6.382 billion, down from Rs11.468 billion on June 26, 2004.
On April 23, fifteen banks had assured State Bank Governor Dr Ishrat Husain of pouring in Rs20 billion into the stock market to help smooth transition of badla to margin financing. Dr Husain had sought the help of banks on the advice of Prime Minister Shaukat Aziz who wanted them to steer the stock market out of the crisis that had hit the market in late March.
The banks were: National Bank, Habib Bank, United Bank, Muslim Commercial Bank, Allied Bank, Faysal Bank, Metropolitan Bank, Union Bank, Bank Alfalah, Bank Al-Habib, PICIC Commercial Bank, Saudi Pak Bank, Askari Bank, KASB Bank and Bolan Bank.